McDonnell's road plan may benefit from tweak to state credit limit

By
Anita Kumar and Rosalind S. Helderman

A week before Gov. Bob McDonnell (R) unveiled his plan to issue nearly $3 billion in bonds for road improvements, a state committee helped pave the way for his proposal by approving a tweak in the model used to determine the state's annual debt capacity.

For years, Virginia has used a self-imposed cap that required the state not take on debt equal to more than annual debt service payments for each of the next 10 years. The cap has helped the state hold on to its vaunted AAA-bond rating. But under the current cap, projections showed that Virginia had already maxed out its credit limit for the next three years.

The Debt Capacity Advisory Committee, made up of legislative and gubernatorial staffers, voted Nov. 20 to recommend the state pay debt service each year that equals five percent of the average annual revenue for the next 10 years. By taking an average of future years' revenues, it allows the state to take into account future growth -- when the economy has presumably turned around and revenues have become healthy.

State staffers project that six of 10 years will allow the state to borrow more each year than before. That worried two members who opposed the change. Glen S. Tittermary, director of the Joint Legislative Audit & Review Commission, and Betsey Daley, staff director of the Senate Finance Committee -- both of whom are appointed to the advisory committee by the legislature -- opposed the proposal.

Secretary of Finance Ric Brown said the state will still be eligible to borrow the same amount over a decade but acknowledged that more money would be available under this interpretation during the first few years.

The committee advises both McDonnell and the General Assembly. McDonnell is to present a complete package of his budget amendments to the General Assembly on Friday.

"I can tell you this: We're totally opposed to it," Senate Majority Leader Richard Saslaw (D-Fairfax) said. "There's nothing I can do right now. But we'll announce next Friday what we're going to do. We're going to fix this."

Saslaw wouldn't detail what Senate Democrats will propose. However, state Sen. Janet Howell (D-Fairfax) earlier noted that the General Assembly could write the five percent cap into code, which would turn it from a self-imposed guideline into a mandate.

"We've got a AAA bond rating,'' Saslaw said. "We've always been considered well run. This crowd is about to wreck it."

But Robert Vaughn, staff director of the House Appropriations Committee and a member of the committee, said the model will not change and the state's debt will remain the same.

Legislators will decide whether to approve McDonnell's request to borrow an additional $2.9 billion over the next three years for transportation.

About $1.8 billion in bonds approved in 2007, but never issued, will be issued. Legislators already agreed to pay back the debt - about $135 million a year - using money raised from the state insurance premium tax. About $1.1 million in bonds will be paid back with federal funds. Connaughton said about $80 million a year will be diverted to debt service from the $800 million a year the state receives in federal highway funds.

Brown said the $1.1 million in bonds will not count toward the state's debt capacity, while the $1.8 million had been factored into the state's debt capacity since the bonds were already authorized.

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